How to get a mortgage for a new build home

There are many factors that could make a newly built property appealing to prospective home buyers. In addition to being energy-efficient, new build homes also benefit from a warranty which gives peace of mind in case anything goes wrong with the property usually within the first 10 years of the build.

What is a new-build property?

A new-build home is one that has been recently constructed by a property developer with no prior owner or occupant.

To obtain a mortgage for a newly built home, or any property for that matter, mortgage lenders may use significantly different standards or definitions. Some lenders, for instance, may classify a house as a new build if it has had extensive renovations in the last two years but has not been occupied during that period. Buying off-plan refers to when purchasers acquire a home where the developer has not yet begun construction.

Additionally, self-build is distinct from new-build and off-plan purchases. With a self-build, you individually assume every risk, from purchasing the land to securing planning permission through to engaging with contractors to oversee the actual construction work.

What is a new-build mortgage?

Lenders have specific policies and criteria around lending on new build homes. Although you are not likely to be paying a higher rate of interest for new build mortgages, the amount the lenders will lend is determined by their risk appetite for new build homes.

There are a few lenders who can lend up to 95% on new build house mortgage but when it comes to flats, will limit the lending amount to 85% and below.

Many lenders will also take into consideration any incentives the developer may give you, such as gifted deposits, so it is always worth speaking with an independent mortgage broker to assess the best options for you.

What if completion of the new-build property is delayed?

It’s vital to remember that a mortgage offer often only lasts for up to six months. This implies that if the construction process takes longer than expected, you can lose your current mortgage offer and will need to reapply or select a new mortgage product. Your affordability will need to be re-evaluated at this point, and mortgage interest rates can possibly be higher.

You will need to pay a deposit if you are purchasing off-plan to secure the property. Developers will usually require you to exchange contracts within 28 days of paying the reservation fee, which will mean you need to pay 10% at the point of exchange.

How can I get a mortgage for a new-build home?

Mortgages for newly constructed homes are identical to those for conventional (or older) homes.

Depending on your requirements and preferences, you can choose between a fixed rate or tracker rate mortgage. You can select fixed rates for a short period, like two or three years, or for a longer period, like five or ten years.

Think about any special assistance, government schemes, or shared ownership options you might qualify for. Some schemes are designed specifically for people purchasing newly build homes.